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Written by the Mackenzie Growth Team
In June we attended a life sciences tools and diagnostics conference. Both markets saw a lot of capital inflow during the 2020-2021 period, which pushed money into drug companies, research labs and diagnostic testing facilities. The subsequent reduction in spending in those areas in 2022 and until today have brought a more severe financial setup for both public and private companies. The result has been a life sciences sector under pressure in the markets. We see opportunity, and we have been involved in several areas – like clinical research at Charles River Labs and life sciences consumables and instruments at Bio-Techne.
More recently we have also become interested in diagnostics. The reality in the diagnostics market is that a company needs more than just good science. That is a necessary thing, but a diagnostics business also needs to be good at gathering data and evidence, dealing with regulatory compliance and testing guidelines, obtaining reimbursement for tests (not a given since payers try to avoid writing cheques as long as possible), and targeting solid financial results.
We recently became involved in the diagnostics market with a holding in Hologic in the US Mid Cap Opportunities Fund. The company is dominant in womens’ health, with businesses in molecular diagnostics, digital mammography and surgical devices. The company was a beneficiary of the inflow of capital into labs and grew its installed base of testing instruments during that period – now the company is expanding its test menu to take advantage of these placements. Hologic has a very solid balance sheet, and the M&A opportunity set has increased with so many companies now under pressure.
Our presence in various life sciences markets is congruent with our strategy to remain under weighted in cyclical exposures. Our health care weighting overall is about 27% in the US Mid Cap Opportunities Fund and about 30% in the US Small-Mid Cap Growth Fund. Recent economic releases, like the US employment statistics, have been weak. We remain positioned with a relatively low exposure to more cyclical businesses, and we trimmed weightings in some of these like Wabtec where the market was more optimistic earlier in the second quarter.
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